Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings on the bank facilities of Essel Mining and Industries Limited (EMIL). CRISIL Ratings has also withdrawn its rating on bank facilities of Rs 129.47 crore at the company’s request and upon receipt of the required banker confirmation. This is in line with CRISIL Ratings’ policy on withdrawal of ratings.

 

The ratings continue to reflect the company’s healthy financial risk profile, supported by healthy cash flow from diversified businesses (coal mining, renewable power and ferro alloys); and significant value of its investments including those under its wholly owned subsidiary, IGH Holdings Pvt Ltd (IGH, ‘CRISIL AA/Stable/CRISIL A1+’), which was valued at ~Rs 47,089 crore as on October 16, 2024.

 

The ratings also consider the robust financial flexibility of EMIL as it is one of the key holding companies of the Aditya Birla group, and its extensive experience in the mining business (iron ore and coal). These strengths are partially offset by susceptibility to regulatory risks in the mining business and significant capital expenditure (capex) plans over the medium term.

 

EMIL operationalized a coal block in fiscal 2024 in Singrauli, Madhya Pradesh, under a mine developer and operator (MDO) contract in its step-down subsidiary, Amelia Coal Mining Ltd (ACML). It is further implementing two coal projects – a commercial mining block under its subsidiary, EMIL Mines and Mineral Resources Ltd (EMMRL, CRISIL AA-(CE)/Stable/CRISIL A1+(CE)), and a coal MDO block under its subsidiary, Subhadra Coal Mining Ltd (SCML). Over the next few fiscals, the company will incur substantial capex towards these projects, which is expected to be met through external borrowings and internal accrual. Fresh fund infusion from Aditya Birla group will be available in case of any funding shortfall. EMIL’s ability to operationalize these projects without any time or cost overruns will remain a key monitorable.

 

Furthermore, the company has invested and is a majority stake holder in Novel Jewels Ltd (NJL), the retail jewellery arm of the Aditya Birla group. While the group has planned significant investments to grow the business under NJL, CRISIL Ratings understands that the role of EMIL will be limited to funding the equity portion to the extent of its shareholding (~Rs 825 crore likely to infused over fiscal 2025-2026), and the business will be run by an independent board and management team under the oversight of the Aditya Birla group. Any significant deviation in this understanding or material support to the jewellery business (beyond the equity infusion) will remain a key rating sensitivity factor.

Analytical Approach

For arriving at its rating, CRISIL Ratings has combined the business and financial risk profiles of EMIL and its key subsidiaries: Bhubaneswari Coal Mining Ltd (BCML), Rajmahal Coal Mining Ltd (RCML), Palace Solar Energy Pvt Ltd (PSEPL), ACML, SCML, IGH and EMMRL. CRISIL has also factored holding company approach for arriving at the rating as EMIL holds investments in Aditya Birla Group companies through one of its subsidiaries.

 

Also, CRISIL Ratings has moderately consolidated the business of NJL to reflect the equity support which shall be provided by EMIL.

 

Further, CRISIL Ratings has considered the compulsorily convertible debentures (CCD) of Rs 3,032 crore outstanding as on March 31, 2024 as equity.

 

Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong financial flexibility as part of the Aditya Birla group

EMIL, through IGH, has investments in the Aditya Birla group companies, Hindalco Industries Ltd ('CRISIL A1+'), Grasim Industries Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Aditya Birla Fashion and Retail Ltd ('CRISIL AA+/Watch Negative/CRISIL A1+'), Vodafone Idea Ltd and Aditya Birla Real Estate Ltd ('CRISIL AA/Stable/CRISIL A1+'). Also, it directly holds stake in Aditya Birla Capital Ltd (‘CRISIL AAA/Stable/CRISIL A1+’). These businesses are sizeable and strategic, making EMIL a key entity in the Aditya Birla group. The stake of EMIL in these companies was valued at around Rs 47,089 crore as on October 16, 2024, providing healthy financial flexibility. Furthermore, the Aditya Birla group has extended support to EMIL through infusions in the form of equity, inter corporate deposits and CCDs of Rs 2,500 crore in fiscal 2020, Rs 1600 crore in fiscal 2021, Rs 800 crore in fiscal 2022 and Rs 1,413 crore in fiscal 2024. Any material weakening of the credit risk profile of the underlying investments or change in the investment cover will remain a key rating sensitivity factor.

 

• Extensive experience in the mining business

EMIL has been in the mining business for more than five decades. It was one of the largest iron ore mining, processing and trading companies in the non-captive private sector. Apart from iron ore, the company has extensive experience in the coal MDO business wherein it mines coal for Eastern Coalfields Ltd (ECL), Mahanadi Coalfields Ltd (MCL) and THDC India Ltd on a contractual basis. EMIL is also implementing a new coal MDO and a commercial coal block, commercial operations of which are expected to commence in fiscal 2027. A longstanding presence in the mining business should continue to help the company get the required approvals for the commercial operations to start on time. 

 

• Increasing contribution to cash accrual from diversified businesses

EMIL is currently undertaking contract coal mining through its wholly owned subsidiaries, BCML and RCML for MCL and ECL  respectively, which are subsidiaries of Coal India Ltd; and ACML (51% of equity held by BCML and the rest by RCML) for THDC India Ltd. Contract coal mining lends stability to credit risk profile due to fixed revenue stream, strong counterparty, high operating efficiency due to pass-through cost structure, moderate gearing, and healthy liquidity of Rs 1,127 crore as on March 31, 2024. The company has mining agreements till December 2024 for BCML and March 2031 for RCML, while the contract for ACML is valid for the next 28 years. The renewable segment comprises about 150 megawatt (MW) of solar and wind capacities, which are operating steadily for many years and contributed earnings before interest, taxes, depreciation, and amortisation (Ebitda) of ~Rs 90 crore in fiscal 2024.

 

EMIL acquired an iron ore beneficiation and pelletisation plant (IOBP) in fiscal 2019 with 1 million tonne per annum (MTPA) capacity, which commenced operations in 2021. While the plant faced stabilization issues in fiscal 2024 leading to operating losses, it is currently ramping up and is expected to achieve stable cash accrual over the medium term.

 

Weaknesses:

• Significant capex plans over the medium term

Over the past two years, the company has won two coal blocks under the MDO route (being implemented under ACML and SCML). In fiscal 2021, it also won commercial coal mining for the Bandha block (EMMRL) in Madhya Pradesh. While ACML has been operationalised in fiscal 2024, the other two are expected to be operationalised by fiscal 2027. While these projects have high gestation period and entail large capex (~Rs 5,700 crore), receiving the required regulatory and environmental approvals remains a monitorable. Moreover, the capex requirements are expected to be met through accruals from existing contracts, external borrowings and promoter support as and when needed.

 

• Modest financial risk profile

Gearing remained comfortable at 0.12 times as on March 31, 2024, because of mark-to-maket value of investment and CCD infusion. However, debt protection metrics were subdued with interest coverage and net cash accrual to adjusted debt ratios falling to 1.86 times and 0.04 time, respectively, in fiscal 2024 from 1.91 times and 0.05 time, respectively, in fiscal 2023 owing to incraese in debt at IGH levels. Going forward, interest coverage ratio is expected to improve over the medium term with ramp-up of IoBP business and coal mining assets. Limited debt obligation in fiscal 2025 and healthy liquidity also lend comfort.

Liquidity: Strong

Liquidity is driven by expected annual cash accrual of Rs 200-250 crore in fiscals 2025 and 2026 and consolidated cash and equivalent of ~Rs 1,127 crore as on March 31, 2024. EMIL also has access to unutilised fund-based limit of Rs 200 crore. Also, liquidity is strongly supported by investments of over ~Rs 47,089 crore as on October 16, 2024, held by EMIL in the Aditya Birla group companies (held directly and through IGH). Internal accrual, cash and equivalent, unutilised bank limit and strong support from the promoter group should be sufficient to meet debt obligation of Rs 600-650 crore annually in fiscals 2025 and 2026, part fund the capex and incremental working capital requirement. The importance of EMIL as a key holding company for the Aditya Birla group provides it with financial flexibility.

Outlook: Stable

EMIL's debt protection metrics will be comfortable over the medium term on the back of stable cash accrual and fund infusion by the Aditya Birla group.

Rating sensitivity factors

Upward factors

• Improvement in the business risk profile, supported by timely commissioning and ramp up of new mines, resulting in healthy accrual visibility from mining operations and sustenance of stable performance from other businesses.
• Significantly higher than expected profitability and healthy capital structure, resulting in material improvement in debt coverage ratios from current levels, along with increase in market value of investments from the current Rs 47,089 crore (as on October 16, 2024).

 

Downward factors

• Significantly lower than expected operating profitability coupled with a significant decline in market value of investments from the current Rs 47,089 crore (as on October 16, 2024).
• Significant time or cost overruns in completion of capex due to pending approvals or delay in fund infusion impacting cash flow over a longer duration.

About the Company

EMIL is closely held by the Aditya Birla group and is an established player in the mining business with a track record of over five decades. It has a noble ferro alloy division in Vapi, Gujarat, which manufactures low-carbon ferro alloys such as ferrovanadium and ferromolybdenum. The company has investments in various Aditya Birla group companies through its subsidiary, IGH.

 

As a part of its initiative in the green energy space and environment conservation, EMIL owns windmills in Dhule, Maharashtra; a 27-MW solar power generation project in Rajasthan; projects with 38-MW capacity in Telangana; and a 15-MW solar power plant in Gujarat through a step-down subsidiary, PSEPL.

 

RCML, BCML and ACML mine coal for ECL, MCL and THDC India Ltd, respectively, on a contractual basis.

 

EMIL acquired Pro Minerals Pvt Ltd (PMPL) in fiscal 2019, which has an IOBP plant of 1 MTPA capacity. PMPL was merged with EMIL in 2022.

 

EMIL is implementing a coal MDO project under SCML, and a commercial coal project under EMMRL.

Key Financial Indicators Indicators – EMIL (consolidated) - CRISIL Ratings-adjusted figures

As on/for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	2,416	2,091
Profit after tax (PAT)	Rs crore	84	34
PAT margins	%	3.5	1.6
Adjusted interest coverage	Times	1.86	1.91
Adjusted debt/adjusted networth	Times	0.12	0.11

 

Any other information: Not applicable

Annexure – List of entities consolidated

Names of entities consolidated	Extent of consolidation	Rationale for consolidation
Bhubaneswari Coal Mining Ltd	Full	Subsidiary
Rajmahal Coal Mining Ltd	Full	Subsidiary
Amelia Coal Mining Ltd	Full	Step-down subsidiary
Subhadra Coal Mining Ltd	Full	Subsidiary
IGH Holdings Pvt Ltd	Full	Subsidiary
Palace Solar Energy Pvt Ltd	Full	Subsidiary
EMIL Mines and Mineral Resources Ltd	Full	Subsidiary
Novel Jewels Ltd	Moderate	Subsidiary